SYDNEY (Reuters) – As Virgin Australia shrinks to survive the pandemic, tiny Regional Express Holdings Ltd (Rex)
is picking up some of its larger rival’s planes and staff on the cheap – and attracting investors who see profit in the high-stakes plan.
A Boeing Co
737 leasing deal announced on Wednesday is the latest step in Rex’s gamble to take on Qantas Airways Ltd
and Virgin starting with Sydney-Melbourne, the world’s fifth-busiest domestic route before the pandemic.
The move by Rex, until now an operator of ageing 30-36 seat turboprops, is a rare example of an airline expanding into new markets as the pandemic cripples air travel.
Shares in Rex and charter operator Alliance Aviation Services Ltd
have risen this year as investors look for counter-cyclical growth stories. Rex’s shares reached a one-year high on Thursday.
Graphic – Regional carriers Regional Express and Alliance Aviation are outperforming larger peers as they undertake counter-cyclical expansion plans: https://fingfx.thomsonreuters.com/gfx/ce/bdwvkkyqqvm/AustraliaRegionalAviation.png
Rex entered the pandemic with a licence, little debt, a paid-off fleet and no planes on order. Last week it signed a term sheet with Asian investment firm PAG Asia Capital for up to A$150 million ($106.23 million) of convertible notes to pay for service to big cities, funds Rex Deputy Chairman John Sharp told Reuters will be kept separate from its government-subsidised regional operations.
But even with those advantages and the ability to sign cut-rate contracts, analysts say Rex faces formidable odds in competing against larger players. Those well-established brands have strong loyalty programmes, more frequent flights and fancier airport lounges, and will scramble to win back share as demand recovers.
“They are really poking the bear here,” Rico Merkert, a professor of transport at the University of Sydney Business School, said of Rex. “Qantas will do everything they can to defend their